[Federal Register Volume 65, Number 47 (Thursday, March 9, 2000)]
[Notices]
[Pages 12599-12600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5761]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42489; File No. SR-AMEX-00-13]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to the Trading of Options on Biotech HOLDRs

March 2, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 28, 2000, the American Stock Exchange Inc. (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The proposed rule change has been filed by the Amex as a 
``non-controversial'' rule change under Rule 19b-4(f)(6) \3\ under the 
Act. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to trade standardized and FLEX equity options 
on Biotechnology Holding Company Depositary Receipts (``Biotech 
HOLDRs'' or ``HOLDRs''). The text of the proposed rule change is 
available at the Office of the Secretary, Amex and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to provide for the 
trading of standardized equity options and FLEX \4\ equity options on 
Biotech HOLDRs.\5\ Biotech HOLDRs are exchange-listed securities 
representing beneficial ownership of the specific deposited securities 
represented by the HOLDRs. They are negotiable receipts issued by a 
trust representing securities of issues that have been deposited and 
are held on behalf of investors in HOLDRs. Biotech HOLDRs, which trade 
in round lots of 100, and multiples thereof, may be issued after their 
initial offering through a deposit of the required number of shares of 
common stock of the underlying issuers with the trustee. The trust will 
only issue HOLDRs upon the deposit of the shares of underlying 
securities that are represented by a round-lot of 100 HOLDRs. Likewise, 
the trust will cancel, and an investor may obtain, hold, trade or 
surrender HOLDRs in a round-lot and round lot multiples of 100 HOLDRs. 
Biotech HOLDRs are currently traded on the Exchange like other equity 
securities, subject to the Exchange's equity trading rules.
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    \4\ Flex equity options provide investors with the ability to 
customize basic option features including size, expiration date, 
exercise style, and certain exercise prices.
    \5\ The Exchange's proposal to list and trade Trust Issued 
Receipts (also referred to as HOLDRs) was approved by the Commission 
on September 21, 1999. See Securities Exchange Act Release No. 41892 
(September 21, 1999), 64 FR 52559 (September 29, 1999).
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    The Exchange believes trading options on Biotech HOLDRs is 
appropriate because Biotech HOLDRs currently exceed the minimum 
eligibility criteria for equities set forth in Amex Rule 915, as do 
each of the underlying securities.\6\ Specifically, there are a minimum 
of 7,000,000 shares of each of the underlying securities owned by 
persons other than those required to report their security holdings 
under Section 16(a) of the Act; there are a minimum of 2000 
shareholders of each of the underlying securities; trading volume (in 
all markets in which the underlying securities are traded) has been at 
least 2,400,000 shares in the preceding twelve months; the market price 
per share of each of the underlying securities has been at least $7\1/
2\ for the majority of business days during the three calendar months 
preceding the date of selection as measured by the lowest closing price 
reported in any market in which the underlying securities traded on 
each of the subject days and the issuers are in compliance with any 
applicable requirements of the Act. The Biotech HOLDRs also satisfy 
these eligibility criteria.
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    \6\ The Exchange represents that both the Biotech HOLDRs and the 
underlying securities meet the options eligibility criteria outlined 
in Amex Rule 915. Telephone conversation between Scott Van Hatten, 
Legal Counsel, Derivative Securities, Amex, and Heather Traeger, 
Attorney, Division of Market Regulation (``Division''), SEC, on 
February 28, 2000.
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    Options on Biotech HOLDRs will be traded on the Exchange pursuant 
to the same rules and procedures that apply to trading in options on 
equity securities. However, the Exchange is also proposing to list FLEX 
Equity options on Biotech HOLDRs. The Exchange will list option 
contracts covering 100 HOLDRs, the minimum required round lot trading 
size for HOLDRs. Strike prices for the contracts will be set to bracket 
the trust issued receipts at the same intervals that apply to 
standardized equity options (i.e., 2\1/2\ point intervals for 
underlying equity values up to $25, 5 point intervals for underlying 
equity values greater than $25 up to $200, and 10 point intervals for 
underlying equity values greater than $200). The proposed position and 
exercise limits for options on Biotech HOLDRs will be the same as those 
established for stock options as set forth in Amex Rule 904 and 905. 
The Amex anticipates that options on Biotech HOLDRs will initially 
qualify for a position limit of 13,500 contracts. However, as with 
standardized equity options, applicable position limits will be 
increased for options on Biotech HOLDRs if the volume of trading in 
HOLDRs increases to meet the requirements of a higher limit. As is 
currently the case for all FLEX Equity options, no position and 
exercise limits will be applicable to FLEX Equity options overlying the 
HOLDRs. Options on Biotech HOLDRs will be subject to the listing and 
maintenance standards set forth in Amex Rule 915 and 916.\7\ FLEX 
options will be subject to the

[[Page 12600]]

standards set forth in the Amex 900G rule series.\8\
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    \7\ Amex has filed proposed listing and maintenance standards 
specifically for the trading of options on Trust Issued Receipts, 
proposed Commentary .07 under Amex Rule 915 and proposed Commentary 
.09 under Amex Rule 916. The proposed standards have not yet been 
noticed in the Federal Register, as the Commission and the Exchange 
are still discussing the proposed rule change. See SR-Amex-99-37. If 
the proposed standards are approved, Biotech HOLDRs will be subject 
to these specific listing and maintenance standards. Telephone 
conversation between Scott Van Hatten, Legal Counsel, Derivative 
Securities, Amex, and Heather Traeger, Attorney, Division, SEC, on 
February 25, 2000.
    \8\ Telephone conversation between Scott Van Hatten, Legal 
Counsel, Derivative Securities, Amex, and Heather Traeger, Attorney, 
Division, SEC, on February 28, 2000.
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    Should Biotech HOLDRs cease to trade on an exchange or as national 
market securities in the over-the-counter market, there will be no 
opening transactions in the options on the HOLDRs, and all such options 
will trade on a liquidation-only basis (i.e., only closing transactions 
to permit the closing of outstanding open options positions will be 
permitted). In addition, the Amex will consider the suspension of 
opening transactions in any series of options of the class covering 
Biotech HOLDRs if: (1) The options fail to meet the uniform equity 
option maintenance standards in Commentary .01 to Amex Rule 916; \9\ 
(2) the trust has more than 60 days remaining until termination and 
there are fewer than 50 record and/or beneficial holders of Biotech 
HOLDRs for 30 or more consecutive trading days; (3) there are fewer 
than 50,000 HOLDRs issued and outstanding; (4) the market value of all 
Biotech HOLDRs issued and outstanding is less than $1,000,000; or (5) 
such other event shall occur or condition exist that in the opinion of 
the Exchange makes further dealing in such options on the Exchange 
inadvisable.
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    \9\ Specifically, Commentary .01 to Amex Rule 916 provides that 
an underlying security will not meet the Exchange's requirements for 
continued listing when, among other things; (i) There are fewer than 
6,300,000 publicly-held shares; (ii) there are fewer than 1,600 
holders; (iii) trading volume was less than 1,800,000 shares in the 
preceding twelve months; and (iv) the share price of the underlying 
security closed below $5 on a majority of the business days during 
the preceding 6 months.
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    Options on Biotech HOLDRs will be physically-settled and will have 
the American-style exercise feature used on all standardized equity 
options, and not the European-style feature. The Exchange, however, 
also proposes to trade FLEX Equity options which will be available with 
both the American-style and European-style exercise feature, as well as 
other FLEX Equity features.\10\ Lastly, the proposed margin 
requirements for options on Biotech HOLDRs will be at the same levels 
that apply to options generally under Amex Rule 462.
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    \10\ An American-style option may be exercised at any time prior 
to its expiration. A European-style option, however, may be 
exercised only on its expiration date.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \11\ of 
the Act in general and furthers the objectives of Section 6(b)(5) \12\ 
in particular in that is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5)
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange represents that the proposed rule change will impose 
no burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action
    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) thereunder 
\14\ because the proposed rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days from the date of filing, or such shorter time 
that the Commission may designate if consistent with the protection of 
investors and the public interest.\15\ Any any time within 60 days of 
the filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection for investors, or otherwise in the furtherance of the 
purposes of the Act.\16\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In reviewing this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ Because the Commission and Amex have had ongoing 
discussions regarding the proposed rule change, the Commission has 
determined to waive the requirement that Amex provide the Commission 
with written notice of its intent to file the proposed rule change 
at least five business days prior to the filing date.
    \16\ 15 U.S.C. 78s(b)(3)(C).
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    The Exchange has requested that the rule change be accelerated to 
become operative immediately upon filing of the proposal, because such 
proposal contemplates trading options on a product in which both the 
product and each of the underlying component securities exceeds the 
minimum eligibility requirements for trading options on equities as set 
forth in Amex Rule 915. Because both the securities underlying Biotech 
HOLDRs and Biotech HOLDRs themselves meet the eligibility requirements 
for trading options on equity securities, and because the Exchange is 
currently working to establish specific listing and maintenance 
standards for options on HOLDRs, the Commission finds that accelerating 
the operative date of the rule change is consistent with the protection 
of investors and the public interest, and thus designates March 2, 2000 
as the operative date of this filing.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-
0609. Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-AMEX-00-13 and 
should be submitted by March 30, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\

    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-5761 Filed 3-8-00; 8:45 am]
BILLING CODE 8010-01-M